On Feb. 1, 1997, a fire started in the Kariya plant of Aisin Seiki, a major automotive parts supplier to Toyota, Japan (HBR, July 2005). This plant supplied 99% of P-valves for Toyota cars in Japan. Toyota had less than 1-day’s inventory (just-in-time). The production system could be totally shut down for months due to extent of damage at the Aisin plant. Within hours Aisin engineers met with Toyota and other tier I suppliers. They agreed to improvise as much as possible. Some tier II suppliers agreed to play leading roles. Aisin sent blueprints of valves to any tier II supplier who expressed interest in using them and also distributed its tools and remaining raw materials. In no time, there were 62 different locations working on the P-valves manufacturing process. Denso, Toyota’s largest supplier, volunteered to manage the logistics. One of the tier II suppliers managed to deliver 1,000 of these valves in less than 85 hours after the incident. Four days later Toyota assembly lines were up and running.

Figure 1. Conceptual presentation of projects Keiretsu shows mutual relationships to project. (Graphic courtesy of Chevron Technology Ventures)
Several unique aspects of project association and execution could be observed here:
• Aisin Seiki trusts its would-be competitors with blueprints;
• Toyota has a lot of faith in its supplier network;
• Denso volunteers to manage the complex logistics;
• Nobody saw this as an opportunity to crush Aisin Seiki and degrade them from their lead supplier position; and
• Collective victory is valued as a long-range major win as against short-term individual victory.

Such homogeneity of profit-making corporations calls for a close study and has a lot of learning involved for the oil and gas (O&G) industry, where massive projects with several entities involved come into practice at all times. For example, how long should it take for hurricane-damaged offshore platforms to start production again? What is the most optimistic time frame for the next drilling project? These questions may not have exact answers; however, applying the principles of a Toyota-like network, one can augment the project performance.

Rise of Keiretsu

Before Japan surrendered in World War II, Japanese industry was controlled by giant conglomerates that were called Zaibatsu. The allied forces dismantled these Zaibatsu to curb the economic prowess of these industry giants. However after Japan’s independence, the dismantled members of zaibatsu reassembled themselves and structured around a major lending bank via cross shareholding. These homogeneous networks of organizations came to be known as Keiretsu. These were financial Keiretsu. Borrowing the same cultural background, major Japanese corporations established their supply Keiretsu. In the above-mentioned case study, Toyota with its tier I and tier II suppliers is an example of supply Keiretsu.

Concept of projects Keiretsu

Borrowing the learning from the Japanese industry, a “projects Keiretsu” can be envisioned for O&G. There are several entities involved in project execution in the O&G industry as seen in Figure 1. All the entities can assemble as projects Keiretsu (similar to a supply Keiretsu) wherein organizational boundaries are deliberately made porous for mutual benefits.

Following are some of the benefits of such a structure:
• Shorter project timeframe;
• Higher efficiency as all parties cooperate and share best practices, tools and techniques;
• Optimal use of resources such as hardware;
• Communication resistances been taken care of beforehand;
• Mutual benefits of execution, nimbleness of smaller players and structured approach of big ones;
• Organizational learning and visibility for smaller players;
• Project execution with lower capital cost;
• Synergy of activities due to mutual expectations; and
• Moral obligation taking precedence over contractual one.

Strategy framework

Establishing such a close-knit network is a challenging task. The following strategy framework can be envisioned for projects Keiretsu in O&G.

Realization of shared vision. It is extremely important for all the parties involved to have a shared vision and realize that personal success results from project success and no single entity wins the game. Sense of ownership is an extremely important part of shared vision.

Mutual loyalty. The very foundation of Keiretsu rests on the principle of mutual loyalty. A member of a Keiretsu should always be a preferred partner. All the same, that member should automatically maintain the quality of services being provided and not take undue advantage.

Trust and fairness. Elements of trust and fairness lead to mutual loyalty, which leads to a shared vision. Smaller subcontractors trusting their bigger counterparts and looking to them for necessary help is an important element of a Keiretsu structure. Bigger organizations being fair to smaller players and not bullying them is equally important.

Respect. Continuing with the discussion of trust and fairness, the next dimension is that of respect. Respect leads to a sense of self-importance in other parties and, hence, execution nimbleness.

O&G projects Keiretsu

Consider the following hypothetical case study, an offshore platform of a major O&G producer damaged by a “Category 5” hurricane in the Gulf of Mexico.
Old scenario: No Keiretsu. O&G engineers wait for the hurricane to be over so that the damage can be assessed. After assessing the damage, O&G engineers chart their project plan and approach a major engineering, procurement and construction (EPC) firm. EPC engineers prepare a quote and wait for the O&G producer to accept it. Then they contact fabricators and equipment suppliers for their availability. These entities can take their own time to revert. Subcontractors at the same time could be engaged somewhere else. There may be necessity of nondisclosure agreements (NDAs) and other contractual documentation, which could be time-consuming elements. Thus the project takes much longer.

New scenario: Projects Keiretsu (as shown in Figure 1). O&G engineers share as-
built drawings with EPC engineers off-site, wherein a number of scenarios of possible future damage are generated. Immediately after the hurricane, all these engineers assess the damage on-site and chart out the required strategy. The sub-contractors, fabricators and equipment suppliers have had the news since day one, and they respond proactively with available manpower and expertise instead of waiting for the O&G producer to float an inquiry.

The major EPC firm shares tools such

as CAD and project management software with subcontractors who may not have access to these and offer their project management expertise. Thus an immediate balance between tools required and resources available can be attained. One can observe that a number of activities are happening in parallel and there is a sense of collective urgency. Sharing of information and tools should not be a problem since everybody NDAs and other contracts and copyright issues have been taken care of beforehand. The effective timeline of activities can be much shorter.

Conclusion

Having such a balanced projects Keiretsu would help the entire industry. Projects would be completed on a shorter time-frame. Troubleshooting would be a much smoother process. This would also result in cost saving. Thus the question you need to ask yourself is, do you believe in alliance capital or do you still follow each man for himself; a few hundred-years-old principle?